Div Division 5.1The residual pricing method

## Division 5.1 The residual pricing method > actual mass of project natural gas, in relation to an integrated operation and a year of tax in which the operation produces project liquid or project electricity, means the mass of project natural gas that was used to produce project liquid or project electricity. > actual volume of project natural gas, in relation to an integrated operation and a year of tax in which the operation produces project liquid or project electricity, means the volume of project natural gas that was used to produce project liquid or project electricity. > arm’s length price means the consideration received or receivable in relation to a transaction in which the parties are dealing with each other at arm’s length. (a) of an integrated GTL operation for the purposes of calculating assessable petroleum receipts relating to sales gas: see subregulation 5(2); and (b) of an integrated GTE operation for the purposes of calculating assessable petroleum receipts relating to sales gas: see subregulation 5(3); and (c) of an integrated GTL operation for the purposes of calculating assessable petroleum receipts relating to natural gas: see subregulation 5(5); and (d) of an integrated GTE operation for the purposes of calculating assessable petroleum receipts relating to natural gas: see subregulation 5(6). > petroleum product, of an operation, means petroleum, or a product of petroleum, that is recovered, produced or processed in the operation. > phase cost, for a phase of an integrated operation, means the phase cost worked out using subregulations 32(2) and (3). > RPM price, for a participant in an integrated operation in a year of tax, has the meaning given by regulations 20 and 21. > start date, in relation to capital cost incurred in an integrated operation, means 1 January of the financial year in which the cost is incurred. > taxpayer means a person who is a participant in an integrated operation and whose assessable petroleum receipts in relation to sales gas or natural gas from that operation are to be worked out under these Regulations because of regulation 14, 15 or 16. (a) of an integrated operation for the purposes of calculating assessable petroleum receipts relating to sales gas: see subregulation 5(1); and (b) of an integrated operation for the purposes of calculating assessable petroleum receipts relating to natural gas: see subregulation 5(4). (2) The project natural gas of the integrated GTL operation is the petroleum (natural gas) mentioned in paragraph (1)(a) from which sales gas will be produced and processed into liquefied product within the overall operation (including any of that natural gas that is used in that production and processing). (3) The project sales gas of the integrated GTL operation is the sales gas mentioned in paragraph (1)(b) that will be processed into liquefied product within the overall operation (including any of that sales gas that is used in that processing). (a) if an election has been made in relation to the integrated GTL operation under regulation 43—the 2012‑13 year of tax; and (8) The period beginning with the production year and ending with the year of tax in which project sales gas is last processed into project liquid is the operating life of the integrated GTL operation. (9) If the integrated GTL operation produces a marketable petroleum commodity other than project sales gas, the year of tax in which it is first produced is the MPC production year for the integrated GTL operation. (2) The project natural gas of the integrated GTE operation is the petroleum (natural gas) mentioned in paragraph (1)(a) from which sales gas will be produced and consumed in the production of electricity within the overall operation (including any of that natural gas that is used in that production). (3) The project sales gas of the integrated GTE operation is the sales gas mentioned in paragraph (1)(b) that will be consumed in the production of electricity within the overall operation (including any of that sales gas that is used in that production). (5) The project natural gas, project sales gas and project electricity are project product of the integrated GTE operation. (6) The year of tax in which the project sales gas is first consumed in the production of project electricity is the production year for the integrated GTE operation. (8) The period beginning with the production year and ending with the year of tax in which projects sales gas is last consumed in the production of project electricity is the operating life of the integrated GTE operation. (9) If the integrated GTE operation produces a marketable petroleum commodity other than project sales gas, the year of tax in which it is first produced is the MPC production year for the integrated GTE operation. (1) For the purposes of calculating assessable petroleum receipts relating to sales gas under regulation 14 or 15, the upstream stage of an integrated operation is a series of phases ending when all of the following actions have been completed: (g) the transportation of project product for the recovery mentioned in paragraph (a) or the production mentioned in paragraph (e); (2) For the purposes of calculating assessable petroleum receipts relating to sales gas under regulation 14 or 15, the downstream stage of an integrated GTL operation is a series of phases beginning when the upstream stage ends and ending when all of the following actions have been completed: (e) any activity associated with an action mentioned in paragraphs (a) to (d) for the purpose of using project sales gas to produce project liquid; (h) the storage of project liquid at or adjacent to the place at which it is produced by the processing mentioned in paragraph (b); (k) any multiple use of units of property for the storage, loading or transportation mentioned in paragraphs (h), (i) and (j). (3) For the purposes of calculating assessable petroleum receipts relating to sales gas under regulation 14 or 15, the downstream stage of an integrated GTE operation is a series of phases beginning when the upstream stage ends and ending when all of the following actions have been completed: (a) the transportation (if any) of the project sales gas from the upstream stage for combustion to produce project electricity; (c) any multiple use of units of property that are used in the combustion of the project sales gas to produce project electricity; (d) any activity associated with an action mentioned in paragraphs (a) to (c) for the purposes of using project sales gas to produce project electricity; (4) For the purposes of calculating assessable petroleum receipts relating to natural gas under regulation 16, the upstream stage of an integrated operation is a series of phases ending when all of the following actions have been completed: (c) the storage of recovered project natural gas before use in the production of sales gas, if the storage occurs before the sale referred to in paragraph 24(1)(f) of the Act; (d) any multiple use of the units of property that are used to store recovered project natural gas (including units of property that are used to store recovered project natural gas before use in the production of sales gas, if the storage occurs before the sale referred to in paragraph 24(1)(f) of the Act); (5) For the purposes of calculating assessable petroleum receipts relating to natural gas under regulation 16, the downstream stage of an integrated GTL operation is a series of phases beginning when the upstream stage ends and ending when all of the following actions have been completed: (a) the storage of recovered project natural gas, if the storage occurs after the sale referred to in paragraph 24(1)(f) of the Act; (b) any multiple use of the units of property that are used to store recovered project natural gas (including units of property that are used to store recovered project natural gas, if the storage occurs after the sale referred to in paragraph 24(1)(f) of the Act); (m) any activity associated with an action mentioned in paragraphs (i) to (l) for the purpose of using project sales gas to produce project liquid; (p) the storage of project liquid at or adjacent to the place at which it is produced by the processing mentioned in paragraph (j); (s) any multiple use of units of property for the storage, loading or transportation mentioned in paragraphs (p), (q) and (r). (6) For the purposes of calculating assessable petroleum receipts relating to natural gas under regulation 16, the downstream stage of an integrated GTE operation is a series of phases beginning when the upstream stage ends and ending when all of the following actions have been completed: (i) any multiple use of units of property that are used in the combustion of the project sales gas to produce project electricity; (j) any activity associated with an action mentioned in paragraphs (g) to (i) for the purposes of using project sales gas to produce project electricity; > Note: In general terms, a phase is a part of an operation during which the ratio of project product to total product flowing through the operation remains the same (and is expected to remain the same). The upstream and downstream stages of an integrated operation may include a number of phases, but each stage ends when the actions associated with the last phase have been completed. > Note: This regulation divides the integrated operation into phases in such a way that petroleum product is not brought into or taken out of the operation except at the beginning or end of a phase. In obtaining the cost‑plus and netback prices: the costs for the assessment year are apportioned between the project product and other product, using an energy coefficient appropriate for the phase (regulation 37). > Note: This procedure assumes that the same phase points apply over the life of the project. If a new phase point emerges that was not identified before the production year, there may need to be a recalculation of the annualised capital costs. (b) any point in the flow of project product through the operation at which there is expected to be a difference in the ratio of project product to total product flowing through the operation before and after the point. > Note: Example 1: An integrated GTL operation begins with the recovery of natural gas and liquid petroleum, using the same extraction facilities. Separate pipelines are used to carry off the natural gas and the liquid petroleum, so that only the gas pipeline is part of the operation. The total product flowing through the operation is reduced, as the liquid petroleum is removed. The ratio of project product in relation to total product therefore changes at the beginning of the gas pipeline, and the beginning of the pipeline is therefore a phase point. > Note: Example 2: At the sales gas production facility of an integrated GTL operation, natural gas from another source is added to the project natural gas. The point at which the natural gas is added is a phase point. > Note: Example 3: Some of the sales gas produced in an integrated GTL operation is transported in a pipeline that is part of the operation, and therefore enters the down stream phase; it is then sold before liquefaction. The ratio of project product to total product changes when the sales gas is sold before liquefaction, as the total product in the operation is reduced. The point of sale is therefore a phase point. (1A) However, paragraph (1)(b) does not apply to an integrated GTL operation for which an election has been made under regulation 43. > Note: In general terms, a phase is a stage of an operation during which the ratio of project product to total product flowing through the operation remains the same (and is expected to remain the same). (a) in the financial year before the production year, notify the Commissioner of any phase points of the operation that are apparent to any of them at that time; and (3A) However, subregulation (3) does not apply if an election has been made in relation to the integrated operation under regulation 43. (4) The participants in the integrated operation must satisfy the Commissioner that they can provide accurate records of the quantities of petroleum product before and after each phase point (for example, by including metering facilities at the phase point or using other reliable estimation techniques). (1) A reference to multiple use of a phase relating to the recovery of project natural gas is a reference to the use of the unit of property, at any time during the operating life of the integrated operation, in operations to recover petroleum other than project natural gas from the petroleum project. (2) A reference to the multiple use of a phase relating to the production of project sales gas is a reference to the use of the unit of property, at any time during the operating life of the integrated operation, to produce marketable petroleum commodities other than project sales gas from petroleum (whether or not the petroleum was recovered from the petroleum project of the operation). (3) A reference to the multiple use of a phase relating to the processing of project sales gas into project liquid is a reference to the use of the unit of property, at any time during the operating life of the integrated GTL operation, to process marketable petroleum commodities other than project sales gas into liquefied product (whether or not the other marketable petroleum commodities were produced in the operation). > Note: Example: Plant used to liquefy project sales gas is also used to liquefy sales gas produced outside the operation. (3A) A reference to the multiple use of a phase relating to the combustion of project sales gas to produce electricity is a reference to the use of the unit of property, at any time during the operating life of the integrated GTE operation, to combust petroleum products other than project sales gas to produce electricity (whether or not the other petroleum products were produced in the operation). > Note: Example: Plant used to combust project sales gas is also used to combust sales gas produced outside the operation. (4) A reference to the multiple use of a phase relating to the transportation of project product is a reference to the use of the unit of property, at any time during the operating life of the integrated operation, to transport petroleum product other than project product within the operation (whether or not the petroleum product was recovered or produced in the operation). > Note: Example: A pipeline from an offshore petroleum recovery platform that carries natural gas to shore, only some of which is project natural gas. (5) A reference to the multiple use of a storage facility is a reference to the use of the storage facility, at any time during the operating life of the integrated operation, to store petroleum product other than project product within the operation (whether or not the petroleum product was recovered or produced in the operation). (6) A reference to the multiple use of a loading facility is a reference to the use of the loading facility, at any time during the operating life of the integrated GTL operation, to load petroleum product other than project product within the operation (whether or not the petroleum product was recovered or produced in the operation). A person is a participant in the operation if the person holds an interest in the operation that entitles the person to petroleum product or electricity of the operation at the end of at least one phase. > A transaction is a non‑arm’s length transaction if the Commissioner, having regard to any connection between the parties to the transaction or to any other relevant circumstances, is satisfied that the parties to the transaction are not dealing with each other at arm’s length in relation to the transaction. (i) if the participants will measure by volume—the total volume of project natural gas to be recovered during the life of the operation; or (ii) if the participants will measure by mass—the total mass of project natural gas to be recovered during the life of the operation. (i) the day on which the participants must give to the Commissioner a starting base return under subclause 22(2) of Schedule 2 to the Act; or (3) As soon as practicable after receiving an estimate (including a revised estimate under subregulation (4)) from the participants, the Commissioner must notify them in writing that the Commissioner: (4) If, from new information, it appears that an estimate notified by the Commissioner is inaccurate, the participants must give to the Commissioner a revised estimate. (5) If, having regard to relevant information, the Commissioner is not satisfied that an estimate given by the participants for subregulation (1) or (4) is reasonable, the Commissioner may substitute an estimate that the Commissioner is satisfied is reasonable. (6) For an operation in which natural gas will be measured by volume, the estimated average annual volume of project natural gas is (using the estimates notified by the Commissioner): (7) For an operation in which natural gas will be measured by mass, the estimated average annual mass of project natural gas is (using the estimates notified by the Commissioner): (8) The expected operating life of the integrated operation is the period of years estimated as the operating life, as notified by the Commissioner, beginning with the production year. (b) otherwise—the year of tax in which the actual volume of project natural gas first exceeds the estimated average annual volume of project natural gas for the operation. > Note: If the estimated average annual volume of project natural gas changes from one year of tax to another, the base year for the calculation of the volume coefficient may also change. (2) The volume coefficient for an integrated operation in which natural gas is measured by volume in a year of tax (the current year) is: (b) otherwise—the year of tax in which the actual mass of project natural gas first exceeds the estimated average annual mass of project natural gas for the operation. > Note: If the estimated average annual mass of project natural gas changes from one year of tax to another, the base year for the calculation of the mass coefficient may also change. (2) The mass coefficient for an integrated operation in which natural gas is measured by mass in a year of tax (the current year) is: (2) If an advance pricing arrangement applies to the sale, the amount of assessable petroleum receipts of a taxpayer is the amount calculated in accordance with the arrangement. (3) The assessable petroleum receipts of a taxpayer in relation to the sale is the amount calculated under subregulation (4) if: (5) The assessable petroleum receipts of a taxpayer in relation to the sale is the amount calculated under subregulation (6) if: (b) the RPM price of project sales gas for the taxpayer in the year of tax in which the sale took place multiplied by the volume or mass of project sales gas sold. #### 15 Assessable petroleum receipts—sales gas of integrated operation becoming excluded commodity other than by being sold (1) For paragraph 24(1)(e) of the Act, this regulation applies to sales gas that becomes or became an excluded commodity if it is project sales gas of an integrated operation. (2) If an advance pricing arrangement applies to the transaction, the amount of assessable petroleum receipts of a taxpayer is the amount calculated in accordance with the arrangement. (3) The assessable petroleum receipts of a taxpayer in relation to the transaction is the amount calculated under subregulation (4) if: (4) The amount is the comparable uncontrolled price multiplied by the volume or mass of project sales gas subject to the transaction. (5) The assessable petroleum receipts of a taxpayer in relation to the transaction is the amount calculated under subregulation (6) if: (6) The amount is the RPM price of project sales gas for the taxpayer in the year of tax in which the transaction took place multiplied by the volume or mass of project sales gas subject to the transaction. (2) If an advance pricing arrangement applies to the sale, the amount of assessable petroleum receipts of a taxpayer is the amount calculated in accordance with the arrangement. (3) The assessable petroleum receipts of a taxpayer in relation to the sale is the amount calculated under subregulation (4) if: (5) The assessable petroleum receipts of a taxpayer in relation to the sale is the amount calculated under subregulation (6) if: (b) the RPM price of project natural gas for the taxpayer in the year of tax in which the sale took place multiplied by the volume or mass of project natural gas sold. (1) The Commissioner may, at the request of a participant in an integrated operation, make an agreement (advance pricing arrangement) with the participant about how the assessable petroleum receipts of the participant are to be calculated in relation to project sales gas or project natural gas to which paragraph 24(1)(d), (e) or (f) of the Act applies. (1) A comparable uncontrolled price, or CUP, in relation to a relevant transaction for a volume or mass of project sales gas, is a price for sales gas: (a) that was obtained for a sale in a market that the Commissioner is satisfied is a relevant market in relation to the transaction; and (1A) A comparable uncontrolled price, or CUP, in relation to a sale of a volume or mass of project natural gas to which paragraph 24(1)(f) of the Act applies, is a price for natural gas: (a) that was obtained for a sale in a market that the Commissioner is satisfied is a relevant market in relation to the transaction; and (2) In determining whether a market is relevant, the demand and supply characteristics of the market must be taken into account, including: (b) geographic differences between the production facilities and the product delivery point of the sales gas or natural gas sold in the market; and (a) the terms of contracts usual in the market, including volumes, discounts, exchange exposures and other relevant conditions that would reasonably be considered to affect the price; where the cost‑plus price and the netback price of the assessable gas are obtained by following Steps 1 to 13 of the residual pricing method. (1) This regulation applies if a taxpayer does not have sufficient information to work out the taxpayer’s RPM price for an assessable gas for a year of tax using the residual pricing method. (2) If the taxpayer and the Commissioner are able to agree on a price for this subregulation, that price is the RPM price. (3) If the Commissioner and the taxpayer cannot agree on a price, and the Commissioner is satisfied that a price worked out by the Commissioner using the residual pricing method, and using the information available from other participants in the integrated operation, is a fair and reasonable price, that price is the RPM price. (4) If the Commissioner and the participant cannot agree on a price, but the Commissioner is not satisfied as to a price under subregulation (3), the RPM price is the price determined by the Commissioner as fair and reasonable. > Note: Example 1: If a participant incurs direct costs in the participant’s own right in relation to the integrated operation, and there is no agreement between the participants as to how these costs are to be shared amongst them, information about those direct costs may not be available to the other participants to allow them to work out the RPM price. > Note: Example 2: If a person becomes a participant in the integrated operation, but does not have access to all the information required to work out the RPM price, then this regulation would apply. The cost‑plus price of an assessable gas for a taxpayer who is a participant in an integrated operation in a year of tax is: > QAG (quantity of assessable gas) is the quantity, measured by volume or mass, of the assessable gas that was produced in the operation in the year of tax. > UCC (upstream capital costs) is the total amount of upstream capital costs incurred by the participants and allocated to the year of tax (see regulation 25). > UOC (upstream operating costs) is the total amount of upstream operating costs incurred by the participants in the year of tax (see regulation 25). (1) The netback price of an assessable gas for a taxpayer who is a participant in an integrated operation in a year of tax is: > DCC (downstream capital costs) is the total amount of downstream capital costs incurred by the participants and allocated to the year of tax (see regulation 25). > DOC (downstream operating costs) is the total amount of downstream operating costs incurred by the participants in the year of tax (see regulation 25). > QAG (quantity of assessable gas) is the quantity, measured by volume or mass, of the assessable gas that was produced in the operation in the year of tax. > QTDG (quantity of taxpayer’s downstream gas) is the quantity, measured by volume or mass, of the assessable gas that was produced in the operation in the year of tax and: (a) for an integrated GTL operation—processed into project liquid that the taxpayer was entitled to receive (including any of that gas that was used in that processing); or (b) for an integrated GTE operation—consumed in the production of project electricity that the taxpayer was entitled to receive. (2) If the taxpayer sells a quantity of project liquid or project electricity from the operation as part of the operation in the year of tax, and the sale is an arm’s length transaction, the market value of the quantity is taken to be the amount received for the sale. (3) For a quantity of project liquid or project electricity to which subregulation (2) does not apply, the market value of the quantity is the market value at the end of the downstream stage. (4) If the Commissioner is not satisfied that sufficient information is available to determine a market value for subregulation (3), the market value of the quantity of project liquid or project electricity is the amount determined by the Commissioner as fair and reasonable. The residual pricing method of calculating an RPM price for a taxpayer, in relation to the assessment year, is the following: | When the method can be used | An RPM price can be calculated by this method only if information about the direct costs of all the participants (other than marketing and selling costs) is available. Information about the operating costs is required for the year of tax concerned. Information about the capital costs is required for all previous financial years as well (except if an election under regulation 43 or 44 applies to the operation, in which case less information is needed for capital costs incurred before 2 May 2010). If the information is not available, regulation 21 will apply. | | --------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | What the method does | The method identifies the pooled costs of the operation attributable to the project product, and the personal costs of the taxpayer attributable to the taxpayer’s share of project product. The pooled costs are used to calculate the major element of the cost‑plus and netback prices; this element will be the same for each taxpayer participating in the operation. The personal costs are used only to calculate a minor element of the netback price; this element will vary with the individual taxpayer.First, the costs that were incurred by the participants in relation to the integrated operation are identified.Certain costs relating to exploration, etc, are excluded.That portion of the costs that is not attributable to the integrated operation is excluded.The personal costs of other participants are excluded. The personal costs of the taxpayer are included, but treated separately.The included costs, where necessary divided into separate costs, are attributed to the various phases of the operation.Capital costs are spread over the life of the operation and the costs for the assessment year identified.The amount of each cost attributed to an assessment year is adjusted to account for the use of facilities of the operation for activities that are not part of the project.The direct costs of all the participants (other than marketing and selling costs) that are attributable to the production of assessable gas and project liquid (for an integrated GTL operation) or project electricity (for an integrated GTE operation) are pooled to give unit costs that apply to the operation as a whole. The personal costs of the taxpayer (marketing and selling costs) attributable to the taxpayer’s shares of assessable gas and project liquid or project electricity are applied to give supplementary unit costs. These are then used to calculate the taxpayer’s cost‑plus and netback prices. | | Step 1 | Identify the types of cost associated with the operationApply regulation 26 to identify all types of cost associated with the integrated operation up to and including the assessment year. At this point, only the type of cost needs to be known—information about individual costs and their amounts is not necessary. | | Step 2 | Exclude exploration costs, etcApply regulation 27 to exclude certain types of cost, including costs of such matters as exploration or feasibility studies. | | Step 3 | Identify direct and indirect costs for the operationApply regulation 28 to classify each type of cost not so far excluded as a direct cost or an indirect cost. | | Step 4 | Exclude personal costs of other participantsApply regulation 29 to exclude personal costs of other participants.The costs that are left are the included costs for the taxpayer (regulation 30). These consist of the pooled non‑personal costs of all the participants in the integrated operation, and the personal costs of the taxpayer. | | Step 5 | Classify the included costs as operating or capital costsApply regulation 31 to classify each included cost as an operating cost or a capital cost. | | Step 6 | Identify the amounts of the relevant included costsIdentify the amount of:each included operating cost incurred in the assessment year; andeach included capital cost incurred up to and including the assessment year.If an election has been made under regulation 43 or 44 in relation to an integrated GTL operation, apply regulation 31A to capital costs that were incurred before the 2012‑13 year of tax. | | Step 7 | Attribute the direct costs to the different phasesApply regulation 32 to classify each direct cost as a phase cost of one of the phases of the integrated operation, or as a combination of such phase costs. Regulation 32 also divides phase costs and indirect costs into upstream and downstream costs. | | Step 8 | Augment capital costs for units of property that take several years to completeIf a capital cost was incurred in a year before the completion year of the unit of property for which it was incurred, augment it as appropriate, then treat it for Step 9 (if applicable) or Step 10 (otherwise) as having been incurred in the completion year for that unit of property (regulation 33). | | Step 9 | Augment and reduce early capital costsIf a capital cost was incurred before the production year, augment it and reduce it as appropriate, then treat it for Step 10 as having been incurred in the production year (regulations 34 and 35). | | Step 10 | Allocate capital costs to years of taxFor each capital cost, allocate to each year of tax from the production year onward a cost with the amount given by regulation 36. | | Step 11 | Identify costs for the assessment yearThe costs for the assessment year are:the included operating costs for the assessment year; andthe capital costs allocated to the assessment year under Step 10. | | Step 12 | Apply the energy coefficients to the costsFor each cost for the assessment year, apply regulation 37 with the energy coefficient appropriate for the phase to which the cost has been attributed.Note: This removes that part of each cost attributable to multiple use of a phase. | | Step 13 | Obtain the cost‑plus and netback pricesUse the costs for the assessment year to calculate the participant’s cost‑plus price (regulation 22) and netback price (regulation 23) for the assessment year. | | Step 14 | Obtain the RPM priceApply regulation 20 to determine the participant’s RPM price for the assessment year. | (1) For Step 1 of the residual pricing method, costs associated with an integrated operation include all costs incurred by or on behalf of the participants that are attributable, or indirectly attributable, or partly attributable, to the operation, whether incurred during the operating life of the operation or before the production year. (2) For Step 1 of the residual pricing method, a payment or allowance between participants is not a cost associated with the integrated operation. (4) If a cost is only partly attributable to the integrated operation, the amount of the cost is taken to be the amount that can reasonably be apportioned to the operation. For Step 2 of the residual pricing method, a cost associated with an integrated operation is excluded from the costs of the operation if it is one of the following: (1) For Step 3 of the residual pricing method, costs associated with an integrated operation are divided into direct costs and indirect costs in accordance with this regulation. (2) A cost is a relevant sector cost if it is wholly and directly attributable to 1 or more of the following activities of the operation: (3) A relevant sector cost that is wholly attributable to either the upstream stage or the downstream stage of the operation is a direct cost. is taken to be divided into two direct costs, attributed to the upstream and downstream stages, each of the amount that can reasonably be apportioned to that stage. > Note: Business insurance, office expense, administrative and accounting costs, payment in respect of land and buildings used in connection with administrative or accounting activities, intra company charges, contract penalties, legal and audit costs, travel and buyer liaison costs. (6) If a cost is related to the marketing and selling of project liquid or project electricity, the cost is a personal cost of the participant that incurred it. (ii) if that financial year is a later financial year—$20 million indexed by the GDP factor as applied under the Act, adjusted from 1 January each year. A cost associated with an integrated operation is an included cost for the taxpayer if it is not excluded under regulation 27 or 29. (1) For Step 5 of the residual pricing method, an included cost for a participant in an integrated operation is a capital cost if: (ii) the unit of property for which it was incurred is a depreciating asset for section 40–30 of the Income Tax Assessment Act 1997; or > Note: If a person incurs operating expenses before the production date, they are treated as capital costs for the purposes of these Regulations. (2) For Step 5 of the residual pricing method, an included cost for a participant in an integrated operation is an operating cost if: (3) A cost which is a capital cost only because of subparagraph (1) (b) (i) is taken to have been incurred on 1 January in the financial year in which it was incurred. > Note: Costs that relate to a unit of property that is constructed over several years of tax are dealt with in regulation 33. (2) An included capital cost to which this regulation applies is taken, for the purpose of the residual pricing method, to have been incurred on 1 July 2012 and not incurred when it was actually incurred. (3) If the cost was for a unit of property that was completed before 2 May 2010, the amount of the cost is taken to be the depreciated replacement cost of the unit at 1 May 2010. (1) For Step 7 of the residual pricing method, the included direct and indirect costs are attributed to the various phases of the operation in accordance with this regulation. (2) For each phase of the integrated operation, each direct cost that can be wholly attributed to the phase is a phase cost for the phase. (a) the cost is taken to be made up of separate costs for each phase, each of the amount (if any) that can reasonably be apportioned to that phase; and (4) Each included indirect cost for the integrated operation is taken to be made up of two costs of equal amounts, of which one is attributable to the upstream stage and one to the downstream stage. > Note: Regulation 37 does not apply to these costs, so that they are not reduced because of the multiple use of a phase. (5) A cost that is a phase cost of a phase in the upstream stage, or an indirect cost allocated to the upstream stage by subregulation (4), is an upstream cost. (6) A cost that is a phase cost of a phase in the downstream stage (which will include marketing and selling costs), or an indirect cost allocated to the downstream stage by subregulation (4), is a downstream cost. (1) For Step 8 of the residual pricing method, this regulation applies to an included capital cost for the taxpayer that is incurred in relation to a unit of property that is constructed over a period of time and for which the last capital cost is incurred in a later financial year (the final cost year). (2) The included capital cost is augmented for the number of calendar years between the start date for the included capital cost and the 1 January of the final cost year. (3) The included capital cost is augmented for the number of calendar years between the start date for the included capital cost and the production date. (3) If the included capital cost is incurred for a unit of property that will be used solely for the recovery of project natural gas, the production of project sales gas, the processing of project sales gas into project liquid, the combustion of project sales gas to produce project electricity or the transportation or storage of project product, the included capital cost is augmented for the number of calendar years between the start date for the included capital cost and the production date. (4) If subregulation (3) does not apply, and the included capital cost is incurred before the MPC production year, the included capital cost is: (a) augmented for the number of calendar years between the start date for the included capital cost and the 31 December of the MPC production year; and (5) If subregulation (3) does not apply, and the included capital cost is incurred in or after the MPC production year and before the production year, the included capital cost is reduced for the number of calendar years between the start date for the included capital cost and the production date. (6) An included capital cost as reduced, or as augmented and reduced, under this regulation is taken to be incurred in the production year. (1) For Step 10 of the residual pricing method, this regulation applies to an included capital cost for the taxpayer (the capital cost) that was incurred in a year of tax (the cost year) in relation to a unit of property (the unit) and has, if appropriate, been augmented or reduced under regulation 34 or 35. (2) The annual allocation for the capital cost is allocated to the cost year and to each subsequent year of tax during the remainder of the expected life of the unit. (5) If, at the end of the assessment year, the expected operating life of the unit has changed since the end of the cost year: (a) the annual allocation of the capital cost for the assessment year is calculated using the new expected operating life of the unit; and (b) the annual allocations of the capital cost for the calculation of RPM prices for years before the change are unaffected. (b) the 31 December of the last year of tax that is within the expected operating life of the operation and during which the unit of property is expected to be used for the operation. (7) For this regulation, a cost that is a capital cost only because of subparagraph 31(1)(b)(i) is taken to have been incurred in relation to a unit of property that has an expected operating life that is the expected operating life of the operation. For Step 12 of the residual pricing method, the amount of each phase cost for a phase, for the year of tax, is taken to be: For paragraph 97(1AA)(b) of the Act, if any of the following is used in working out assessable petroleum receipts for a person under regulation 14, 15 or 16: the amount that is to be included in calculating the current period liability under subsection 97(1A) of the Act is the amount of assessable petroleum receipts worked out under regulation 14, 15 or 16. (1) This regulation applies if a participant in an integrated operation uses an RPM price for an assessable gas in working out assessable petroleum receipts under regulation 14, 15 or 16, and had an RPM price for the previous year of tax. (2) For paragraph 97(1AA)(b) of the Act, the amount that is to be included in calculating the current period liability under subsection 97(1A) of the Act is: (a) for an integrated GTL operation—processed into project liquid that the participant was entitled to receive in the downstream stage (including any of that assessable gas that was used in that processing); or (b) for an integrated GTE operation—consumed in the production of project electricity that the participant was entitled to receive in the downstream stage. (4) If the participant sells a quantity of project liquid or project electricity from the operation as part of the operation in the period, and the sale is an arm’s length transaction, the market value of the quantity is taken to be the amount received for the sale. (5) For a quantity of project liquid or project electricity to which subregulation (4) does not apply, the market value of the quantity is the market value at the end of the downstream stage. (6) If the Commissioner is not satisfied that sufficient information is available to determine a market value for subregulation (5), the market value of the quantity of project liquid or project electricity is the amount determined by the Commissioner as fair and reasonable. (1) This regulation applies if a taxpayer uses an RPM price for an assessable gas in working out assessable petroleum receipts under regulation 14, 15 or 16, but does not have an RPM price for the previous year of tax. (2) Subject to subregulation (3), the amount that is to be included in calculating the current period liability under subsection 97(1A) of the Act is: (a) for an integrated GTL operation—processed into project liquid that the participant was entitled to receive in the downstream stage (including any of that assessable gas that was used in that processing); or (b) for an integrated GTE operation—consumed in the production of project electricity that the taxpayer was entitled to receive in the downstream stage. > RPM price is the RPM price for the assessable gas calculated as if the instalment period were the assessment year (including under regulation 21, if applicable). (3) If the taxpayer became a participant in the assessment year because of a transfer of interests from a participant or participants (the previous participants), the taxpayer may elect to apply subregulation 39(2) as if the factors in the equation were replaced by the following: (a) for an integrated GTL operation—processed into project liquid that the previous participants were entitled to receive in the downstream stage (including any of that assessable gas that was used in that processing); or (b) for an integrated GTE operation—consumed in the production of project electricity that the previous participants were entitled to receive in the downstream stage. > RPMPREV is the average RPM price for the assessable gas for the previous participants for the previous year of tax, weighted according to the end product value for each of the previous participants in the previous year of tax. For section 106A of the Act, a person dissatisfied with any of the following decisions may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953: (1) A participant in an integrated GTL operation that recovers petroleum from an onshore petroleum project may elect to use the residual pricing method. (1) The participants in an integrated GTL operation that first processed project sales gas into project liquid before 2 May 2010 may elect to use a modified form of the residual pricing method. (i) the day on which the participants must give to the Commissioner a starting base return under subclause 22(2) of Schedule 2 to the Act; or > Note: If an election has been made under this regulation, a number of provisions in these Regulations apply or operate differently. The differences include changes to the rules about capital costs (regulations 31 and 31A), and a reduction in the number of phases in an operation (regulation 6).